The deed is done!

Peugeot (Groupe PSA) and Fiat Chrysler Automobiles have agreed to a 50/50 merger to create the world’s fourth largest OEM by volume and third largest by revenue.

The proposed combination will be an industry entity with the management, capabilities, resources and scale to successfully capitalise on the opportunities presented by the new era in sustainable mobility.

With its combined financial strength and skills, the merged entity will be particularly well placed to provide innovative, clean and sustainable mobility solutions, both in a rapidly urbanising environment and in rural areas around the world. The gains in efficiency derived from larger volumes, as well as the benefits of uniting the two companies’ strengths and core competencies, will ensure the combined business can offer all its customers best-in-class products, technologies and services and respond with increased agility to the shift taking place in this highly demanding sector.

While Chrysler/Jeep and Peugeot do well enough in their respective home markets, the Fiat arm is still something of a concern in terms of serious sales and one can only wonder what the future might bring for both Fiat and Alfa Romeo.

The combined company will have annual unit sales of 8,7-million vehicles, with revenues of nearly €170 billion, recurring operating profit of more than €11-billion and an operating profit margin of 6.6%, all on a simple aggregated basis of 2018 results.

According to the joint statement released following the signing: “The combined entity will have a balanced and profitable global presence with a highly complementary and iconic brand portfolio covering all key vehicle segments from luxury, premium, and mainstream passenger cars through to SUVs and trucks and light commercial vehicles.

“This will be underpinned by FCA’s strength in North America and Latin America and Groupe PSA’s solid position in Europe. The new Group will have much greater geographic balance with 46% of revenues derived from Europe and 43% from North America, based on aggregated 2018 figures of each company. The combination will bring the opportunity for the new company to reshape the strategy in other regions.

“The efficiencies that will be gained from optimising investments in vehicle platforms, engine families and new technologies while leveraging increased scale will enable the business to enhance its purchasing performance and create additional value for stakeholders. More than two-thirds of run rate volumes will be concentrated on two platforms, with approximately 3-million cars a year on each of the small platform and the compact/mid-size platform.

“These technology, product and platform-related savings are expected to account for approximately 40% of the total €3.7 billion in annual run-rate synergies, while purchasing – benefiting principally from scale and best price alignment – will represent a further estimated 40% of the synergies.

“Other areas, including marketing, IT, G&A and logistics, will account for the remaining 20%. These synergy estimates are not based on any plant closures resulting from the transaction. It is projected the estimated synergies will be net cash flow positive from year one and approximately 80% of the synergies will be achieved by year four. The total one-time cost of achieving the synergies is estimated at €2,8-billion.

“Those synergies will enable the combined business to invest significantly in the technologies and services that will shape mobility in the future while meeting the challenging global CO2 regulatory requirements. With an already strong global R&D footprint, the combined entity will have a robust platform to foster innovation and further drive development of transformational capabilities in new energy vehicles, sustainable mobility, autonomous driving and connectivity.

The merged entity will have a Board comprised of 11 members, the majority of whom will be independent. Five Board members will be nominated by FCA and its reference shareholder (including John Elkann as Chairman) and five will be nominated by Groupe PSA and its reference shareholders (including the Senior Non-Executive Director and the Vice Chairman). At closing the Board will include two members representing FCA and Groupe PSA employees. Carlos Tavares will be Chief Executive Officer for an initial term of five years and will also be a member of the Board.

“Carlos Tavares, Mike Manley and their executive teams have a strong track record in successfully turning around companies and combining OEMs with diverse cultures. This experience will support the speed of execution of the merger, underpinned by the companies’ strong recent performances and already robust balance sheets. The merged entity will maneuver with speed and efficiency in an automotive industry undergoing rapid and fundamental changes,” says the statement.

Carlos Tavares, Chairman of the Managing Board of Groupe PSA, said: “Our merger is a huge opportunity to take a stronger position in the auto industry as we seek to master the transition to a world of clean, safe and sustainable mobility and to provide our customers with world-class products, technology and services. I have every confidence that with their immense talent and their collaborative mindset, our teams will succeed in delivering maximized performance with vigor and enthusiasm.”

Mike Manley, Chief Executive Officer of FCA, added: “This is a union of two companies with incredible brands and a skilled and dedicated workforce. Both have faced the toughest of times and have emerged as agile, smart, formidable competitors. Our people share a common trait – they see challenges as opportunities to be embraced and the path to making us better at what we do.”